By: Our Correspondent

The Chinese Politburo’s agreement this week to finally replace its one-child policy completely with one allowing couples to have two children is probably too little late. China is about to discover it can’t command families to have babies, or cajole them or flatter them.

One of the products of urbanization is falling birth rates. The total fertility rate – the number of babies born to women of childbearing age—has fallen to 1.18 across China according to the 2010 census. It is even lower, at 0.7 for large cities including Beijing and Shanghai, far below the replacement rate of 2.1.

The government’s announced goal, articulated by Prime Minister Li Keqiang, is to have roughly 900 million of China’s 1.3 billion people living in cities by 2025 – 70 percent of the population.  It was announced earlier in 2015 that for the first time more than 50 percent of China’s population is living in cities.

The country’s coming demographic crisis has been summed up in the words: “China will get old before it gets rich.” But it is seldom realized just how close China has been to tipping point. The work force participation rate – the percentage of the population aged 15-64 – peaked in 2010 at the astonishing level of 71.9 percent. The total working age population peaks this year at 998 million, an increase of only about 25 million or about 0.5 percent annually. Those are not forecasts. They are baked into the age statistics.

Workforce participation is set to decline only very slowly until well after 2020. But the impact of demographic change on economic growth is now. It is often forgotten how much growth during the reform period of the past 20 years was contributed by workforce expansion traced to the bulge in births in the years immediately before the introduction in 1980  of the draconian one-child policy. The work force grew by no less than 33 percent to 973 million over that period and the participation rate went from 66.1 percent to 71.9 percent of the population.

Of course China still has huge scope for raising the productivity of its work force, particularly those underemployed on farms. But much of the driving force in urbanization has come from the mobile young. The middle aged rural poor do not move. Yet there are now only 106 million in the 15-19 age group – those joining the workforce – compared with 122 million in the previous cohort.

This, as well as better job prospects in central and western China, is a major reason why manufacturers are finding it increasingly difficult to attract migrant labor to the Pearl River Delta without offering wage increases which endanger their export competitiveness.

The underlying cause of declining fertility in China now is not the one child policy but the combined impact of market forces and urbanization. The end of socialism brought the end of much welfare, driving up the direct cost of raising children due to school fees and medical costs. It also spurred families into saving for house-buying old age.

Thus children have become relatively more of a burden on household finances. Drastically increased opportunities for wage employment, especially for women, also raised the opportunity cost of children and added to the lure of a consumer society wanting the latest gadgets.

While some Chinese officials acknowledge how serious the fertility problem has become, there is also resistance on the part of officialdom to anything which detracts from investment or suggests welfarism – though actually a replacement level of births should be regarded as the most important investment in the future, not as current consumption.

Even with the move to a two-child policy, the effect is likely to be minimal. Two years ago, the Communist Party announced a partial lifting of the one-child policy, allowing couples who were the product of one-child families to have two. The announcement at the Fifth Plenum of the Communist Party this week that the 35-year-old one-child policy is now ended seems unlikely to have much impact.

Shanghai has being easing the policy’s application for several years but to no effect. Its current fertility rate is just 0.7, or one third the 2.1 needed for human replacement. China indeed looks headed to follow the examples of Hong Kong, Taiwan, Japan, Korea and Singapore which have seen fertility rates keep falling to the 1.1-1.3 range despite herculean – and completely ineffective – efforts by the government to implement policies to raise the birthrate.